I must admit that I am struggling to see how our economy might unfold over the next several years. I have been analysing and predicting economies since the late 1960s, but I am finding it harder now than at anytime during this period.
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A number of relationships we took for granted now don't seem to hold, such as links between liquidity injections and inflation, and wages and unemployment.
Importantly, there have been some very significant shifts in behavior in response to the pandemic - the way we live, work, travel, save, spend, entertain and so on - some of which will be more or less permanent - as with business, governments and many of our institutions.
What we do know is that the magnitude of the economic changes have been bigger than any of us can remember.
We have had the first recession in nearly 30 years, and the biggest economic collapse and social upheaval since the Great Depression. Government stimulus has been massive at around 16 per cent of GDP, about 10 percentage points of which are now being withdrawn.
Indeed, our government has gone from a boast of being "back in black" to what is, and will remain, an eye-watering series of budget deficits and a blow out in our national debt.
Our Reserve Bank has unbelievably shifted from an obsession with inflation control to not only pushing it down to the historic low of just 0.1 per cent, but promising to keep it there for roughly the next three years - committing to bond purchases to sustain what has been a massive injection of liquidity into our banking system and economy.
Indeed, the Reserve Bank of Australia has stated that it now wants to see sustained wages growth and increased inflation before it will even consider raising interest rates, and has pushed our governments, both federal and state, to increase their spending significantly.
The magnitude of the economic changes have been bigger than any of us can remember.
Beyond this, there were serious relaxations in bank lending rules, moratoriums on debt and rent payments, relaxations of insolvency rules, the effective closure of our international border, rolling state border closures and rolling lockdowns, and the inconsistent application of government support like JobKeeper - most noticeably two big industry employers and exporters, higher education and international travel, were ignored.
All these dramatic changes have occurred in 12 months, in the context of an economy that wasn't performing well coming into 2020. We were already coming out of record bushfires and floods with flat wages, record household debt and concerning business debt, weak productivity, low consumer and business confidence, and many households struggling with the costs of living.
Understanding what is happening now and how circumstances will unfold is also difficult having to make guesses of the likely timing and effectiveness of the rollout of vaccines, both internationally and here, and to cut through the government spin on how well we are doing - both in controlling the virus and achieving an economic recovery in what is sure to be an election year.
Clearly, we are in the top 10 of global responses to the COVID-19 virus, but mostly because we have been effectively able to isolate our island by closing our international border. It will be very difficult for us to open our border.
Similarly, our improvements in our economic growth and employment numbers can appear quite large as they are coming off low bases, and the government can be expected to claim victory for this, ignoring just how long it will take for sustainable growth and job security to return.
In his recent speech, the governor of the RBA claimed that we would be back to the pre-COVID level of GDP by the middle of this year. But he also had to admit that our GDP at the end of 2020 would be shown to have been 4 percentage points below where he had forecast, pre-COVID, that we would have been.
We can only hope to recover this growth gap with sustained above-trend growth, but the government is yet to announce and deliver a recovery, reform-based strategy.
Morrison's election strategy is to try to hold it all together through to an election in about September, with more stimulus in the May budget and the benefit of incumbency, leaving all the genuine uncertainty and the deep-seated policy challenges to another term. It will be a bumpy ride.
John Hewson is a professor at the Crawford School of Public Policy, ANU, and a former Liberal opposition leader.
